Wells Fargo failed to reduce the loan balances of thousands of delinquent borrowers as required by a 2010 settlement, a lawyer for the plaintiffs says.

Accusing Wells Fargo & Co. of reneging on a sweeping mortgage-modification deal, a lawyer for troubled homeowners is trying to reopen a lawsuit involving risky "pick-a-pay" loans written during the housing bubble.

Legal filings last week said Wells had failed to provide wide-ranging reductions of loan balances to delinquent borrowers, as it had promised two years ago, when it settled a combined national class-action suit. A bank spokeswoman disputed the filing, calling it riddled with errors.

The litigation illustrates how lawsuits continue to dog major home lenders more than five years after the mortgage industry imploded, including recent challenges to certain cases the banks thought had been put to rest.

The settlement was reached in December 2010 before U.S. District Judge Jeremy Fogel in San Jose. At the time, the San Francisco bank said it would provide at least $50 million and as much as $600 million in modification benefits to troubled borrowers with the pay-option loans.

The original lawsuits over pick-a-pay, or pay-option, mortgages contended that the loans were issued with inadequate notice to borrowers that the amount owed would rise if they chose the lowest payment among four options. The loans were made by banks later acquired by Wells.

"Hundreds of thousands of homeowners were suffering the effects of undisclosed negative amortization for their Pick-a-Payment loans, while the declining U.S. housing market was sucking the remaining equity out of their homes," Berns said in a filing Friday.

The filings included a new lawsuit accusing Wells of breaching the settlement, acting in bad faith and violating a state unfair competition law. In a separate filing, Berns asked the court to order the bank to stop all foreclosures on the loans to allow him to investigate the situation.

Of the 66,000 requests for loan modifications made in the 18 months ending Sept. 30, Wells granted only 1,746, or 2.6%, Berns alleged.

"Thousands of people have been denied loan modifications — people who, in our opinion, should not have been denied," Berns said in an interview Monday.

The pay-option loans were made by World Savings, a large Oakland savings and loan that was acquired in 2006 by Wachovia Corp., a major North Carolina bank that continued to make the mortgages. Wachovia was near collapse in 2008 when it was acquired by Wells Fargo.

In a statement, Wells said it would "immediately and forcefully" defend the new lawsuit, which it said "maligns a very effective consumer loan settlement program."

Wells Fargo didn't say how many borrowers covered by the settlement had received principal reductions. But it said its overall efforts on behalf of people with the tricky loans, many of which preceded the lawsuit settlement, had been extensive.

"We have provided modifications for nearly 110,000 borrowers with Pick-a-Pay loans and principal reductions of more than $5 billion for those borrowers," Wells said. "That means that more than a third of all Pick-a-Pay loans — including those covered by the settlement and those not included — have been modified since the beginning of 2009."